2016 Interim Results
Tuesday, 16 February 2016
Presenters:
Phil Arnall - Chairman and Acting Managing Director
Steve Perry - Chief Financial Officer
1
2016 Interim Results
Key Outcomes
•
Consumable sales, the company’s core product sector, remained consistent compared with the
previous period. Sales revenue was down 14% on the previous period to $404 million due to
an absence of rail car contracts and very subdued sales of capital related products.
•
Encouraging order intake for the period at $441 million exceeded sales revenue for the six
months leading to an increased order book.
•
Gross margins continued to strengthen, increasing 1.7% to 33.4% due to lower operating costs
and improved mix towards higher margin consumables.
•
Underlying EBITDA at $52 million was in line with previous guidance, reflecting slightly higher
margins and $6 million lower cash overheads compared with the previous period.
• Net Profit After Tax was a loss of $168 million. The profit result included $199 million (before
tax) of impairment and restructuring charges, with approximately $186 million of this non-cash.
• Free cash flow was encouraging at $24 million, mainly due to lower inventory and lower capex
spend. The Company remained comfortably within its banking covenants for the period.
• Net debt was down $5 million to $393 million after a negative foreign exchange translation
effect of $19 million in July 2015.
2
2016 Interim Results
Financial Overview
6 Months
to
Dec-15
6 Months
to
Jun-15
6 Months
to
Dec-14
% Change
from
Jun-15
% Change
from
Dec-14
Sales
404.5
470.5
495.4
(14%)
(18%)
Order Intake
441.0
440.0
492.0
-
(10%)
Underlying EBITDA
51.9
63.8
72.3
(19%)
(28%)
12.8%
13.6%
14.6%
-
-
Underlying NPAT
7.1
20.1
13.8
(65%)
(49%)
Underlying EPS (cents)
4.2
12.2
8.3
(66%)
(49%)
Free Cash Flow
24.3
44.8
(6.1)
(46%)
-
Net Debt
393.2
398.6
433.8
1%
9%
A$ Millions
Underlying EBITDA / Sales
3
2016 Interim Results
Sales of Consumable Products Remain Stable
•
Sales of Company’s core mining and other consumable products showed only a slight decrease
of $3.1 million.
•
The US based Engineered Products business sales were down due to lower activity in the capital
goods markets.
•
Sales of rail and other capital goods were down $33.5 million due the reduction in the pipeline of
capital goods orders.
Sales Movements ($m)
500
470.5
3.1
16.0
10.6
33.5
2.6
404.5
Other
Dec-15
400
300
200
100
0
Jun-15
Mining &
Engineered
Other
Products (US)
Consumable
Products
Aust/NZ
Industrial
Goods
Rail & Other
Capital Goods
4
2016 Interim Results
Business Reconfigured to Lower Operating Level
•
Cash overheads were down 7.6% to $78 million compared to the June 2015 half
($14 million of annualised savings).
•
Closure of Acacia Ridge, Launceston and Adelaide foundries is underway ultimately
delivering $6 million of annual overhead savings.
•
Migration of work from the above foundries to lower cost foundries is reducing the variable
cost of manufacture.
•
Exit of loss making European operations will positively impact EBITDA by $3 million per
year.
Cash Overheads ($m)
120
100
80
60
40
20
0
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
5
2016 Interim Results
Strong Free Cashflow Generation
• A substantial focus on working capital reduction, especially around inventory levels,
combined with lower capex spend and lower tax payments contributed to the increase in
free cashflow to $24 million.
• Net debt reduced to $393 million with gearing (Net Debt / Underlying EBITDA) for banking
covenant purposes of 2.8x (which excludes the RPS) comfortably inside the covenant of
3.5x.
• No material debt translation has been recorded since July 2015 due to a substantial
reduction in USD denominated debt since then.
• The Company has a long-term debt profile with no refinancing required before July 2018
and maturities out to 2023.
6
2016 Interim Results
Financial Performance
6 Months
to
Dec-15
6 Months
to
Jun-15
6 Months
to
Dec-14
% Change
from
Jun-15
% Change
from
Dec-14
Sales
404.5
470.5
495.4
(14%)
(18%)
Underlying EBITDA
51.9
63.8
72.3
(19%)
(28%)
Unadjusted EBITDA
13.7
95.2
14.5
-
(6%)
(20.9)
(25.8)
(26.3)
(19%)
(20%)
-
(9.0)
(0.1)
-
-
Amortisation
(4.0)
(5.7)
(5.6)
(30%)
(28%)
Impairment of ANG
(5.5)
(10.4)
(25.6)
(47%)
(78%)
Impairment of PPE
(116.9)
(55.8)
-
109%
-
Impairment of Intangibles
(64.1)
(127.7)
(39.5)
-
-
Net Finance Costs
(18.1)
(17.9)
(15.1)
1%
20%
47.7
8.4
5.1
-
-
Unadjusted NPAT
(168.1)
(148.7)
(92.6)
(13%)
(81%)
Underlying NPAT
7.1
20.1
13.8
(65%)
(49%)
A$ Millions
Depreciation
Equity Profit - ANG
Tax Benefit / (Expense)
7
2016 Interim Results
Reconciliation of Underlying Profit
EBITDA
NPAT
51.9
7.1
5.1
3.6
Manufacturing Reorganisation and Inventory Adjustments
(18.8)
(13.4)
Rail Warranty Provision
(18.2)
(12.7)
Acquisition and Defence Costs & CEO Termination
(2.7)
(2.3)
Unrealised FX Losses
(2.2)
(1.6)
Loss from European Operations
(1.4)
(1.4)
A$ Millions
Underlying Profit
Adjustments
One-off Gains
Impairment of ANG
(5.5)
Impairment of PPE
(81.8)
Impairment of Intangibles
(59.6)
Deferred Tax Adjustments
(0.5)
Unadjusted Profit
(38.2)
(175.2)
13.7
(168.1)
8
2016 Interim Results
Divisional Sales
•
Sales revenue reduced 14% to $405 million when compared with the previous period due largely to
decreased rail car sales ($25 million), lower Australian based industrial sales ($10 million) and lower
sales into the energy sector ($11 million).
•
The current operating level was supported by an increasing order book, with order intake for the
period higher than the sales level, at $441 million.
6 Months
to
Dec-15
6 Months
to
Jun-15
6 Months
to
Dec-14
% Change
from
Jun-15
% Change
from
Dec-14
Mineral Processing
107,789
113,515
104,288
(5.0%)
3.4%
Mining & Transport
114,924
154,098
174,596
(25.4%)
(34.2%)
Fixed Plant
53,956
58,105
77,354
(7.1%)
(30.2%)
Engineered Products
121,015
137,061
130,427
(11.7%)
(7.2%)
6,852
7,707
8,710
(11.1%)
(21.3%)
404,536
470,486
495,375
(14.0%)
(18.3%)
A$ (‘000)
Sales
Other
Total Sales
9
2016 Interim Results
Divisional Margins
Historical Gross Margin % to Sales
40
35
29.0
29.0
1H12
2H12
30
30.7
33.9
32.7
32.8
32.5
31.8
2H14
1H15
2H15
33.4
25
•
Gross margins increased to 33.4% benefitting from
lower operating costs across most plants, and a
higher mix of consumable product sales.
20
15
10
5
0
1H13
2H13
1H14
6 Months
to
Dec-15
% to
Sales
6 Months
to
Jun-15
% to
Sales
6 Months
to
Dec-14
% to
Sales
Mineral Processing
38,891
36.1%
38,128
33.6%
36,921
35.4%
Mining & Transport
32,683
28.4%
39,295
25.5%
45,373
26.0%
Fixed Plant
19,793
36.7%
20,179
34.7%
27,596
35.7%
Engineered Products
36,945
30.5%
44,291
32.3%
41,622
31.9%
Other
6,869
100.2%
7,041
91.4%
9,447
108.5%
135,181
33.4%
148,934
31.7%
160,959
32.5%
A$ (‘000)
1H16
Margin
Total Margin
Note: Mining & Transport margin excludes one-off rail warranty provision of $18,185k
10
2016 Interim Results
EBITDA Movements
•
The largest impact on EBITDA was due to the reduction in sales volume of rail cars, capital mining products
and energy replacement parts.
•
A continued focus on reducing costs was reflected in both lower unit variable costs and lower overheads.
70
63.8
(17.7)
EBITDA Movements ($m)
60
50
(3.5)
11.9
51.9
Costs/Overheads
Dec-15
(2.6)
40
30
20
10
0
Jun-15
Volume-Capital
VolumeConsumables
Price/Mix
11
2016 Interim Results
Cash Generation
•
Operating cash flow (before restructuring costs) was strong at $41 million aided by lower inventory levels
and lower tax payments. This equates to an EBITDA to cash conversion rate of 75%, slightly higher than
the previous five year average of 67%.
•
•
Capex reduced 71% from the previous period to $8 million, being mostly for stay-in-business purposes.
The sale of surplus properties including the Henderson and Cannington sites generated $6 million.
6 Months
to
Dec-15
6 Months
to
Jun-15
6 Months
to
Dec-14
% Change
from
Jun-15
% Change
from
Dec-14
Underlying EBITDA
51.9
63.8
72.3
(19%)
(28%)
Working Capital / Other
5.3
13.6
(28.9)
(61%)
-
(17.5)
(14.3)
(13.6)
22%
29%
Income Tax Payments
0.8
(8.5)
(3.2)
(110%)
-
Operating Cash Flow
(Before Restructuring
40.5
54.6
26.6
(26%)
52%
(13.9)
(17.0)
(9.8)
(18%)
42%
Operating Cash Flow
26.6
37.6
16.8
(29%)
59%
Capex
(8.3)
(28.6)
(27.5)
(71%)
(70%)
Proceeds from Sale of Assets
6.0
35.8
4.6
(83%)
30%
Free Cash Flow
24.3
44.8
(6.1)
(46%)
-
A$ Millions
Interest & Borrowing Costs
Restructuring Costs
12
2016 Interim Results
Working Capital Movements
Working Capital Movements ($m)
250
226.7
(32.3)
54.4
223.4
Payables
Dec-15
(25.4)
200
150
100
50
0
Jun-15
Receivables
Inventory
13
2016 Interim Results
Capital Management
6 Months to:
A$ Millions
Dec-15
Jun-15
Dec-14
Net Debt (excl. leases / incl. RPS)
393.2
398.6
433.8
Shareholder Equity
360.2
538.5
669.5
Working Capital
223.4
226.7
238.0
< 3.5
< 3.5
< 3.0
Actual Gearing (Net Debt / Underlying EBITDA)
2.8
2.5
2.7
Interest Cover (Underlying EBITDA / Borrowing Costs)
3.6
4.5
6.0
52.2%
42.5%
39.3%
Gearing (Net Debt / EBITDA)
3.4
2.9
2.7
Interest Cover (EBITDA / Borrowing Costs)
3.5
4.1
6.0
Covenant Agreement Gearing
Covenant (Net Debt / Underlying EBITDA)
Accounting Gearing
Gearing (Net Debt / Net Debt + Equity)
14
2016 Interim Results
Net Debt Movements
•
Excluding the effects of translation, free cash flow for the period would have reduced the net debt 6% to
$374 million.
•
Following the substantial reduction of USD denominated debt, no translation has been recorded since the
end of July 2015 and no further material translation is forecast (a 10% devaluation of the AUD against the
USD would now give rise to $6 million in translation).
•
Bradken has a long-term debt maturity profile with no refinancing required before July 2018 and
maturities out to 2023.
Net Debt Movements ($m)
450
400
398.6
(40.5)
350
(6.0)
8.3
Sale of
Surplus
Assets
Capex
13.9
374.3
18.9
393.2
Translation
Dec-15
300
250
200
150
100
50
0
Jun-15
Operating
Cash Flow
Restructuring
Costs
15
2016 Interim Results
Operational Review – Mining & Transport
On-site inspection of BKN
dragline bucket and rigging chain
•
Mining related consumable products sales were in line with the previous period, with
Ground Engaging Tool product sales increasing slightly.
•
Rail capital sales were negligible when compared to the $25 million in the previous period.
•
Australian and New Zealand industrial product sales were also significantly down
reflecting lower economic activity.
•
Margins increased by 2.9% to 28.4% in the period reflecting the change in mix and lower
manufacturing costs.
•
Right-sizing the operations of the newly formed division continues with the announced
closure of Launceston and Acacia Ridge foundries and material reduction in Selling,
General and Administrative cash costs.
16
2016 Interim Results
Operational Review – Mineral Processing
Ball Mill reline
•
Sales remained strong throughout the period, with significantly higher levels of order
intake and a closing order book of $114 million, up 12% on HY15.
•
Margins remained healthy over the period as a result of restructuring efforts and
favourable movements in other determinants of costs such as foreign exchange
translation.
•
The business continues to be successful in winning work in key developing mining regions
including Africa, South America and Indonesia.
•
Acquisition of the Indian foundry will provide this business with further low cost capacity
over time.
17
2016 Interim Results
Operational Review – Engineered Products
Pump Casings
‘Multi-Stage
SmartLiner’ Wear Monitoring
(Several 100 to over 2,000kg)
•
Sales revenue was down 12% compared with the previous period reflecting further
reductions in the capital mining markets, coupled with softening in the energy market, due
to declining oil and natural gas prices. These decreases were partially offset by increases
in the transit rail market.
•
Margins were down 1.8% to 30.5% in the period reflecting competitor pressure and volume
related cost increases.
•
Overall, order intake for the period remained low although improved demand from the
military market is expected in the second half, principally products for submarine builds,
which will continue into 2017.
•
The business has undergone significant restructuring including the closure of the Chehalis
foundry in 2015 and a production line in the Atchison foundry in early 2016. Actions to
right-size the business to the current order intake levels will continue.
18
2016 Interim Results
Operational Review – Fixed Plant
Onsite laser scanning of transfer
chutes
•
Sales decreased 7% compared with the previous period, due to lower capital related
project activity in the iron ore and oil sands markets, however replacement and
maintenance parts sales increased by 10%.
•
Margins increased with the higher mix of consumables and benefits from cost reduction
capex spent in 2015.
•
In the Pilbara region, the business has been successful in providing customers with
engineered solutions which have significantly reduced their operating costs and this
initiative is now being successfully replicated in the oil sands region in Canada.
•
Market activity in the period was strong with order intake higher than sales levels
reflective of increased mining production levels. The business was also successful in
winning significant new maintenance work in Canada.
19
2016 Interim Results
A Scorecard Against Strategy
Strategic Actions
Outcomes
1. Right-size overheads to current operating level
• Reduced cash overheads a further 9% ($7 million)
during the period ($14 million annualised).
2. Consolidate manufacturing footprint and focus
on lowering variable costs
• Commenced closure of Launceston, Acacia Ridge
and Adelaide manufacturing facilities.
• Announced planned divestment of European
business including Darlaston and Scunthorpe
manufacturing facilities.
• Acquisition of low cost Indian plant to be completed
in March 2016.
3. Focus on free cash flow to reduce level of net
debt
• Free cash flow of $24 million.
• Reduced exposure to USD debt prevents any
further material translation impacts.
4. Appointment new CEO
• Appointed Mr Paul Zuckerman as CEO to
commence on 1 March 2016.
5. Board Refresh
• Commenced with the appointment of Mr Rupert
Harrington on 1 December 2015.
20
2016 Interim Results
Outlook
•
Consumable sales will continue to dominate future operating levels and plans do not have
any reliance on a resurgence of capital product sales.
•
Continued migration of work from higher cost to lower cost foundries including the ramp-up
of the new Indian foundry over the next 18 months will continue to improve our competitive
position and deliver further margin improvement.
•
The business will target an additional reduction of 10% to $140 million of cash overheads for
fiscal 2017.
•
Further improvements to free cash flow generation are expected due to a continued focus
on reduction in inventory levels, lower cash overheads costs, low capex spend, and sale of
surplus properties including the European assets. Target is for annual free cash flow of $60
million.
•
A reduction in net debt over the next 12 months to a gearing level (for covenant purposes) of
around 2.2 times EBITDA is targeted.
21
Proud to Belong
Questions ?
22